Uncertainty in US Trade Policy Weighs Heavily on Korea's Economic Growth

As the trade policy of the United States continues to evolve under the Donald Trump administration, uncertainty surrounding its implications is having a significant impact on Korea's economic growth. According to the Bank of Korea (BOK), the ongoing uncertainty regarding the trade policy could lower Korea's economic growth rate by up to 0.13 percentage point in 2025 and 0.16 percentage point next year.

Key Takeaways:

• The uncertainty surrounding US trade policy is estimated to reduce Korea's economic growth rate by about 0.13 percentage point this year.
• The anticipated slowdown in Korea's economic growth is largely attributed to a sharp decline in exports and investment, as heightened uncertainty discourages firms from entering foreign markets or making large-scale investments.
• Exports are expected to decline in the second half of the year as US demand for imported goods weakens, and private consumption is expected to fall as households show a stronger tendency toward precautionary savings amid economic uncertainty.
• Had the tariff negotiations not been concluded and uncertainty persisted into next year, the economic impact could have been more severe, potentially dragging down growth by 0.17 percentage point in 2025 and 0.27 percentage point in 2026.
• The BOK's latest forecast expects the local economy to grow 0.9 percent this year and 1.6 percent in 2026.
• Close consultations between Korea and the US are necessary to prevent a renewed increase in US trade policy uncertainty.
• The BOK has emphasized the importance of continued cooperation between the two countries to mitigate the negative impact of trade policy uncertainty on Korea's economic growth.

Statistics:

• Uncertainty surrounding US trade policy is estimated to reduce Korea's economic growth rate by 0.13 percentage point in 2025.
• The anticipated decline in exports is expected to be sharper in the latter half of the year due to weakening US demand.
• Private consumption is expected to fall as households increase precautionary savings amid economic uncertainty.
• Had the tariff negotiations not been concluded, the economic impact could have been more severe, potentially dragging down growth by 0.17 percentage point in 2025 and 0.27 percentage point in 2026.

Sources:

• Bank of Korea (BOK)
• "Uncertainty in US trade policy weighs heavily on Korea's economic growth" (Bloomberg), no date provided
• "South Korean Economy to Grow 0.9 Pct This Year, 1.6 Pct in 2026: Bank of Korea" (Yonhap News Agency), July 17, 2022